Gold demand rose 18 percent in the third quarter as lower prices encouraged purchases by jewelers and as investors sought a haven from the credit crisis, the World Gold Council said.

“We live in pretty difficult times and that’s being reflected in the world of gold,” George Milling-Stanley, a director at the London-based industry group, said in an interview. “More and more investors are seeing the long-term strategic benefits gold can have.”

Global demand rose to 1,133.4 metric tons from 963.3 tons a year earlier, the council said today in a statement. So-called identifiable investment, which includes purchases through exchange-traded funds and of bars and coins, climbed 56 percent to 382.1 tons during the quarter. Jewelry demand gained 7.6 percent and sales to India, the world’s largest gold consumer and jewelry buyer, advanced 29 percent.

Lehman Brothers Holdings Inc.’s bankruptcy filing in September, which triggered a $700 billion U.S. government bank- bailout package, spurred a record 150 tons of gold inflows into ETFs, the council said. ETF gold additions increased 7.5 percent from the second quarter and 31 percent from a year earlier.

“Gold is kind of an insurance policy for your portfolio,” Milling-Stanley said. “It’s the asset of last resort.”

Bullion averaged $870.93 an ounce in the three months through September, compared with $897.69 the previous quarter, and traded at $737.60 an ounce at 11 a.m. in London today. The metal has lost 29 percent since reaching a record $1,032.70 an ounce in March as investors liquidated their commodity holdings to raise cash.

`Back Into Gold’

“There was good deal of selling out of commodity indices,” Milling-Stanley said. “That’s why we saw a downturn in the price of gold even though demand grew. A lot of investors will go back into gold once they have the money to do so.”

The S&P GSCI Index of 24 raw materials slid 28 percent in the quarter, compared with a 5.9 percent decrease in gold prices.

Demand from India rose to 249.5 tons from 190.8 tons, the council said. The country accounted for 27 percent of gold demand in 2007. Indian purchases of the metal traditionally recover in the second half, spurred by the wedding season and Diwali, the festival of lights.

Demand increased by 15 percent in the Middle East and by 18 percent in China.

“If the price remains volatile, that’s going to act as a check on any jewelry growth,” Milling-Stanley said. “Investment demand is going to continue to lead the way in any consumption that we’re going to see.”

`Phenomenal Change’

BullionVault, which allows customers to buy and sell physical gold held in secure vaults in Zurich, London and New York, last week said funded customer accounts almost tripled in the year through October.

“We have seen a phenomenal change in the demand for physical gold ownership,” said Adrian Ash, head of research at the online service for private investors. “If people want to get money to safety, it’s a natural instinct.”

Gold supply fell 9.7 percent to 858 tons, the council said. Central bank sales plunged 87 percent to 23 tons. Banks covered by the Central Bank Gold Agreement sold 357 tons of gold through September this year, the lowest since 1999.

That year, several central banks signed a five-year accord limiting gold sales to help stabilize the market. A second agreement, which runs to Sept. 26, 2009, permitted a quota of 500 tons a year.

“You may find that some of those central banks are done with the selling,” Milling-Stanley said.